lessons in project management - 4 - risk management
DESCRIPTION
Visit the Berlin Consulting Forum at http://consultingforum.becota.orgTRANSCRIPT
International Project Management
Prof. Dr. Frank Habermann
Lecture 4 –
Identifying and Handling Project Risks
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Which kinds of risk would you take?
What actually is a risk?
The process of risk management
– Identifying
– Prioritizing
– Responding
When does risk management have to happen?
Content
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No risk, no fun?
http://www.hosae.ch/blog/wp-content/uploads/2009/08/Desktop-Hintergrund.bmp
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Would you take the …
Picture source: http://monkeysjumping.com/wealthy-baker/
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Would you climb a montain?
Picture source: http://www.vorsorgefachmann.info/images/risiko.png
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Would you ride a motorbike?
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Would you dive with a shark?
Picture source: National Geographic, Photo by David Doubilet
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Would you tease an alligator?
Picture source; pix.motivatedphotos.com/2009/4/9/
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Would you jump?
Picture source: http://farm4.static.flickr.com/3306/3298473550_a9fa13ea33_o.jpg
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With our without risk management?
Without With
Picture source: adapted from www.mattwardman.com/blog/
Gerald preferred the latter!
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what
actually is
a
risk?
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What is a risk?
Picture source: www.iamthewitness.com/books/img/Benjamin.Franklin.jpg
“The only thing certain in life is death and taxes”
(Benjamin Franklin)
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What is a project risk?
Life is riskful!
Illness
Accidents
Crime
Loss
etc.
RR
R
LIFE
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What is a project risk?
Life is riskful!
Business is riskful!
-> it‘s just a specialpart of life withparticular risks
R
RR
RR
LIFE
BUSINESS
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What is a project risk?
Life is riskful!
Business is riskful!
Business projects are riskful!
R
RR
RR
R R
LIFE
BUSINESS PROJECT
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What is a project risk?
Life is riskful!
Business is riskful!
Business projects are riskful!
Projects have to copewith general risks (of lifeand business) as well aswith project-specific risks
R
RR
RR
R R
LIFE
BUSINESS
exogenousproject risks
endogenousproject risks
PROJECT
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and what
is project
riskmanagement
?
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Mastering the „what happens next“ machine
Source: www.youtube.com/watch?v=cog2a3YeDMM
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Project risk management issystematically dealing with project risks
Picture source: www.schueddekopf-gmbh.de/aktuell/_img/unfall_mensch.jpg
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Project risk management issystematically dealing with project risks
find likely events
and their potential impacts
Picture source: www.schueddekopf-gmbh.de/aktuell/_img/unfall_mensch.jpg
IDENTIFY
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Project risk management issystematically dealing with project risks
find likely events
and their potential impacts
Picture source: www.schueddekopf-gmbh.de/aktuell/_img/unfall_mensch.jpg
analyze probability of events
and severity of potential damage
IDENTIFY
PRIORITIZE
© Becota | www.becota.com | 2010
Project risk management issystematically dealing with project risks
find likely events
and their potential impacts
Picture source: www.schueddekopf-gmbh.de/aktuell/_img/unfall_mensch.jpg
analyze probability of events
and severity of potential damage
develope scenario /action plans
establish reserves and monitor
IDENTIFY
PRIORITIZE
RESPOND
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We differentiate two major types of risks
IDENTIFY
PRIORITIZE
RESPOND
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KNOWN-UNKNOWNS
– Something we know EXISTS but wedon‘t know when it will happen andhow severe the consequences will be
We differentiate two major types of risks
IDENTIFY
PRIORITIZE
RESPOND
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KNOWN-UNKNOWNS
– Something we know EXISTS but wedon‘t know when it will happen andhow severe the consequences will be
We differentiate two major types of risks
IDENTIFY
PRIORITIZE
RESPOND
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KNOWN-UNKNOWNS
– Something we know EXISTS but wedon‘t know when it will happen andhow severe the consequences will be
UNKNOWN-UNKNOWNS
– Something which has NEVER HAPPENEDbefore and thus cannot be anticipated, neither qualitatively nor quantitatively
We differentiate two major types of risks
IDENTIFY
PRIORITIZE
RESPOND
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What are the sources of risks?
IDENTIFY
PRIORITIZE
RESPOND
Remember lecture#2: project stakeholders, team and environment
Remember lecture#3: scoping and contracting
Remember endogenous and exogenous risks
© Becota GmbH | www.becota.com | 2010
What are the sources of risks?
IDENTIFY
PRIORITIZE
RESPOND
Remember lecture#2: project stakeholders, team and environment
Remember lecture#3: scoping and contracting
Remember endogenous and exogenous risks
Initial checklist for risk management:
- Do you know all major stakeholders?
- Particularly, do you know your customer(s)?
- Have you organized senior management support?
- Are there significant conflicts you are aware of?
- Are all requirements and goals clearly defined?
- Is the project scope realistic and managable?
- Do you have a clear contract undersigned?
- Are all agreed resources in place?
© Becota GmbH | www.becota.com | 2010
What are the sources of risks?
IDENTIFY
PRIORITIZE
RESPOND
Remember lecture#2: project stakeholders, team and environment
Remember lecture#3: scoping and contracting
Remember endogenous and exogenous risks
Initial checklist for risk management:
- Do you know all major stakeholders?
- Particularly, do you know your customer(s)?
- Have you organized senior management support?
- Are there significant conflicts you are aware of?
- Are all requirements and goals clearly defined?
- Is the project scope realistic and managable?
- Do you have a clear contract undersigned?
- Are all agreed resources in place?
As long as you answer with a single „no“ or „not sure“, you better not start the project!
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All fields of expertise are sources of risks
IDENTIFY
PRIORITIZE
RESPOND
Management risks
Socialrisks
Domain-specificrisks
Environmentalrisks
RISKPROFILE
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All fields of expertise are sources of risks
IDENTIFY
PRIORITIZE
RESPOND
Management risks
Socialrisks
Domain-specificrisks
Environmentalrisks
RISKPROFILE
BudgetScheduleOrg. StructureMethods & Tools etc.
TeamMotivationCommunicationTrust etc.
RegionIndustryTechnologyStandardsetc.
CulturePoliticsEconomyCorporationetc.
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Distributed teams Various languages Different measures Different technical standards Reliability of infrastructure (technology, transport, etc.) Ethnical and religious differences Social violence and instability Prejudice and nationalism Different business practices and rules Different feeling for time and punctuality Different attitude towards risk in general Divergent competency profiles and certificates Government involvement and control Legal basis (multiple national laws) Different currencies, levies, and taxes Intellectual property rights Corruption Environmental safety Climate
Sources of risks which areimmanent to international projects
IDENTIFY
PRIORITIZE
RESPOND
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Methods for identifying risks
IDENTIFY
PRIORITIZE
RESPOND
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Methods for identifying risks
IDENTIFY
PRIORITIZE
RESPOND
THINK (ALONE)Look for risk sourcesIdentify crucial stakeholdersDevelop risk categories / profilesPrepare interviews
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Example risk profile questions
Source: Verzuh, E., The Fast Forward MBA in Project Management, p. 102
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Methods for identifying risks
IDENTIFY
PRIORITIZE
RESPOND
THINK (ALONE)
INTERVIEW OTHERS (1:1)
QA
Consult the key stakeholdersVerify relevance /completenessIdentify further intervieweesSummarize results
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Methods for identifying risks
IDENTIFY
PRIORITIZE
RESPOND
THINK (ALONE)
INTERVIEW OTHERS (1:1)
QA
ORGANIZE WORKSHOPSConnect peopleDiscuss multiple perspectivesIdentify individual risk eventsFind a common understanding
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Now that you‘ve spotted a risk – how dangerous is it?
IDENTIFY
PRIORITIZE
RESPOND
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Now that you‘ve spotted a risk – how dangerous is it?
IDENTIFY
PRIORITIZE
RESPOND
Picture source: www.dirjournal.com
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The IPRA* matrix for analyzing risks
IDENTIFY
PRIORITIZE
RESPOND
Probability(likelyhood ofoccurence of the event)
Impact(severity ofthe damage)
low risk
high risk
*IPRA = International Project Risk Assessment
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The IPRA matrix for analyzing risks
IDENTIFY
PRIORITIZE
RESPOND
Probability(likelyhood ofoccurence of the event)
Impact(severity ofthe damage)
You can workwith a scaledapproach (here3 categories)!
low
medium
high
low medium high
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The IPRA matrix for analyzing risks
IDENTIFY
PRIORITIZE
RESPOND
Probability(likelyhood ofoccurence of the event)
Impact(severity ofthe damage)
1 3 5
3 9 15
5 15 25
You can evenapply weightsand quantifyrisks
low
medium
high
low medium high
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Example risk analysis
Source: Verzuh, E., The Fast Forward MBA in Project Management, p. 106
IDENTIFY
PRIORITIZE
RESPOND
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Now that you know the risk … what will you do?
IDENTIFY
PRIORITIZE
RESPOND
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Now that you know the risk … what will you do?
IDENTIFY
PRIORITIZE
RESPOND
Picture source: http://i.dailymail.co.uk/i/pix/2010/01/07/
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Your attitude determines your action
IDENTIFY
PRIORITIZE
RESPOND
Whatever I do, I will always
survive!
Picture sources: www.beaconmultimedia.com/images
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Your attitude determines your action
IDENTIFY
PRIORITIZE
RESPOND
Whatever I do, I will always
survive!
Whatever I do, This projectwill kill us!
Picture sources: www.beaconmultimedia.com/images http://revnyou.files.wordpress.com/2008/11/
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thinking in worst-scenarios
ignoring chances
neither efficientnor effective
thinking in best-scenarios
ignoring risks
naive and/orirresponsible
Your attitude determines your action
IDENTIFY
PRIORITIZE
RESPOND
Picture sources: www.beaconmultimedia.com/images http://revnyou.files.wordpress.com/2008/11/
too optimistic too pessimistic
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thinking in worst-scenarios
ignoring chances
neither efficientnor effective
thinking in best-scenarios
ignoring risks
naive and/orirresponsible
Your attitude determines your action
IDENTIFY
PRIORITIZE
RESPOND
Picture sources: www.beaconmultimedia.com/images http://revnyou.files.wordpress.com/2008/11/
too optimistic too pessimistic
be
REALISTIC
CONFIDENT
MEASURED
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TO BE KEPT IN MIND:
Sometimes financial interests are
stronger than honest risk assessment,
particularly in politics, i.e.
big money determines action, e.g.
- Genetic research
- Nuclear energy
- Global warming, etc.
In other cases people are guided by
strong social, cultural and other values, e.g.
- Daily routines and work habits
- Equal rights for men and women, etc.
… and what determines our attitude?
IDENTIFY
PRIORITIZE
RESPOND
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Major strategies of responding to risk
Picture source: http://wilderdom.com/images/RiskPeanuts2.jpg
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Five major response strategies1- Accept
IDENTIFY
PRIORITIZE
RESPONDUnderstand the risk but take no preparationsReact, if it occurs (if costs are small, solve the problem) Alternatively, just live with the damage
Applicable only for minor risks!
http://www.onlinemalerei.de/scherbenhaufen3.jpg
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Five major response strategies2- Exclude
IDENTIFY
PRIORITIZE
RESPONDAvoid major risks by excluding those from your projectHand the riskful task over to another projectHas to happen in the scoping phase
Down-scaling a project has limitations!
http://www.allseasonstentrental.com/fence.jpg
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Discussion: What are the limits of down-scaling your project?
Picture source: http://wilderdom.com/images/RiskNotTakingRisksCartoon.jpg
„We‘ve considered every potential risk exceptthe risk of avoiding all risks“
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Five major response strategies3- Transfer
IDENTIFY
PRIORITIZE
RESPONDExternalize responsibility for potential damages bypurchasing insurance, external consultants/experts, etc.Hiring externals has it‘s own risks (legal stuff, liability, etc.)
Transferring risks is expensive!
http://pmstudent.com/wp-content/uploads/hand-over-keys.jpg
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Five major response strategies4- Prepare alternative action
IDENTIFY
PRIORITIZE
RESPONDConsider alternative courses and remedyHave a plan B for important risks (contingency plan)Install project buffer (extra time and money)
Continuously monitor the project‘s main risks!
Picture source: http://picture.funnycorner.net/funny-pictures/5179/In-case-of-fire.jpg
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Five major response strategies5- Mitigate
IDENTIFY
PRIORITIZE
RESPONDAny feasible action to minimize or eliminate the risk,intensively involving all available technological, human and organizational resources
Reasonable for highly critical solutions!
Picture source: http://desktopwallpaper-s.com/wallpapers/19/Rain_Umbrellas.jpg
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Whendoes
risk management
have to happen?
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Risk management takes place during the entire projectR
ISK
MA
NA
GEM
ENT
EFFO
RT
TIME
Pre-Project Main Project
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Risk management takes place during the entire projectR
ISK
MA
NA
GEM
ENT
EFFO
RT
TIME
Pre-Project Main Project
Kick-off Plan approvedTesting/Piloting
completed
3 crucial situations(points of no return …
-> or „expensive“ return)
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Risk management takes place during the entire projectR
ISK
MA
NA
GEM
ENT
EFFO
RT
TIME
Pre-Project Main Project
Kick-offTesting/Piloting
completedPlan approved
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Risk management takes place during the entire projectR
ISK
MA
NA
GEM
ENT
EFFO
RT
TIME
Pre-Project Main Project
Kick-offTesting/Piloting
completed
continuous project risk management
extra effort
(planning)
extra effort
(releasing)
extra effort
(shapingthe
businesscase)
Plan approved
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Why do we spend these extra efforts?C
OST
/EFF
OR
T
TIME
Crucial decision(„point of no return“)
effort put inrisk management
Cost of changes / corrections
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Estimating means forecastingthe project future (time & money)
„Projects are unique –uniqueness means
entering unknown fields“
Questions you should ask yourself:
Do you, as the project manager, know all theteam members?
Have you worked with them before?
Do they know each other and have theyworked together before?
Which project risks have you identified and to whichextent do these risks impact your estimates regardingproject time and resources?
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Over the time estimating becomes easier …
TIME
Pre-Project Main Project
KNOWLDGE GAINED
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Over the time estimating becomes easier …
TIME
Pre-Project Main Project
KNOWLDGE GAINED
ballparkfigures
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Over the time estimating becomes easier …
TIME
Pre-Project Main Project
KNOWLDGE GAINEDRFI/RFPfigures
ballparkfigures
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Over the time estimating becomes easier …
TIME
Pre-Project Main Project
KNOWLDGE GAINED
Planningdetails
ballparkfigures
RFI/RFPfigures
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Finally, even risk management is riskful…
Picture source: http://wilderdom.com/images/RiskSharpEdgesSign.jpg
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… but your project is your baby … and timely precautions are better than late therapies
Picture source: www.siloah.de/siloah/content/kliniken_und_institute/frauenklinik/
Thank you very much!
presentation by
Frank Habermann
founder of Becota and Professor of Business
http://de.linkedin.com/in/frankhabermann/en
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